China to Expand Short-Selling Program as Part of Reform

China will expand its short-selling program on Feb. 28 by allowing selected brokerages to borrow shares from institutional investors, the Shanghai Securities News reported.

Eleven brokerages will be able to borrow shares in a pre- approved pool of 90 publicly traded companies, according to the report, which cited China Securities Finance Corp. The state- owned agency was set up to provide securities firms with funds and stock for short-selling and margin trading.

The expansion of short-selling -- in which investors sell borrowed shares in the expectation of profiting when they fall - - will increase the efficiency of China’s equity market, help manage risks and boost brokers’ revenue, the report said.

The brokerages in the trial program are: Citic Securities (600030) Co., the biggest listed broker; Everbright Securities Co.; GF Securities Co.; Guotai Junan Securities Co.; Guosen Securities Co.; Haitong Securities (600837) Co.; Huatai Securities Co.; Shenyin & Wanguo Securities Co.; China Merchants Securities Co.; Galaxy Securities Co.; and China Securities Co.

These firms will be allowed to borrow shares from CSFC and re-lend to customers. The pre-approved pool of securities comprises 50 companies listed in Shanghai and 40 in Shenzhen, with a total market capitalization of 9.3 trillion yuan ($1.49 trillion), according to the report.

Brokerages will be able to borrow shares from CSFC for fixed periods -- 3, 7, 14, 28 and 182 days -- at different rates, the report said.

The expanded program “will not necessarily add to the selling pressure and suppress the equity market” because more brokers are participating in the margin-trading program, which allows investors to borrow money from brokers to buy shares, according to the report.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai (SHCOMP) at +86-21-6104-3036 or jluo6@bloomberg.net

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net; Feiwen Rong in Beijing at frong2@bloomberg.net

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.